Returns On Capital At SBT Ultrasonic Technology (SHSE:688392) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at SBT Ultrasonic Technology (SHSE:688392) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on SBT Ultrasonic Technology is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.053 = CN¥88m ÷ (CN¥2.1b - CN¥385m) (Based on the trailing twelve months to December 2024).

So, SBT Ultrasonic Technology has an ROCE of 5.3%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.

Check out our latest analysis for SBT Ultrasonic Technology

Above you can see how the current ROCE for SBT Ultrasonic Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for SBT Ultrasonic Technology .

What Can We Tell From SBT Ultrasonic Technology's ROCE Trend?

There are better returns on capital out there than what we're seeing at SBT Ultrasonic Technology. The company has employed 1,040% more capital in the last five years, and the returns on that capital have remained stable at 5.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, SBT Ultrasonic Technology has been investing more capital into the business, but returns on that capital haven't increased. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Like most companies, SBT Ultrasonic Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

While SBT Ultrasonic Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.